Inside Health

THE GOVERNOR'S BUDGET; SPITZER BUDGET SEEKS OVERHAUL OF HEALTH CARE

By DANNY HAKIM

Published: February 1, 2007

Gov. Eliot Spitzer proposed to radically restructure aid to New York's sprawling health care industry in his first budget Wednesday, saying that the system props up failing hospitals and too often overlooks patients' needs, while consuming roughly a third of the state's budget.

The health care changes were among several ambitious proposals that the new governor outlined in his $120.6 billion budget, which would increase overall spending by 6.3 percent -- about double the rate of inflation -- and cut $1.2 billion from existing health care programs. The cuts would offset billions of dollars worth of proposed property tax cuts and increased education aid.

Many of the governor's ideas, which followed up on his campaign pledge to toss aside the conventional way of doing business in Albany, would indeed reshape the way the state operates. But they face tough going in the Legislature, where Mr. Spitzer's brash style has already put him on a collision course with the top legislative leaders, prematurely ending the political honeymoon that often greets newly elected governors. [News analysis, Page B5.]

To control health care spending, Mr. Spitzer would hold the growth of Medicaid to 1.7 percent, compared to 8 percent growth rates in recent years, by cutting subsidies to hospitals and nursing homes, slashing Medicaid reimbursement rates and by stepping up efforts to combat fraud. Conversely, he outlined a plan to make low-cost health insurance coverage available to the state's 400,000 uninsured children.

His budget also called for several other major measures.

One was an education plan that would increase state aid to schools by $7 billion annually within four years and throw out the complex formula used to distribute school aid around the state. New York City would receive $3.17 billion more annually within four years, with the expectation that the city stick to Mayor Michael Bloomberg's plan to increase its own spending by $2.2 billion annually within four years.

But a new municipal-aid formula would favor impoverished cities and take nearly $350 million a year away from New York City.

The budget also includes a $1,000- per-child tax deduction for private school tuition. Similar proposals failed to pass under the previous governor.

Another was a $6 billion, three-year property tax relief plan that would focus new aid on middle-class homeowners, granting an average of $920 in relief for such families in the New York suburbs and an average of $512 upstate. The Senate has proposed distributing the same amount of money in two years in a more broadly based manner.

A third major proposal would increase the state work force by nearly 2,500, including 355 workers who would carry out new policies on civil commitment of sexually violent predators. The governor also proposed creating 166 new environmental and conservation jobs, and create an office specializing in climate change to look at ways to reduce global warming.

Mr. Spitzer, readying for a fight over the health care cuts and school aid, told lawmakers on Wednesday morning that he would take his case to the public. Polls show the governor is far more popular than the Legislature.

''I'm going to be out there talking to voters, citizens, homeowners, taxpayers, editorial boards,'' the governor said in his speech to lawmakers. ''I'm going to be speaking to anybody who will listen. This is not a debate that will be cloistered in the halls of this building. This is a debate that I plan to bring to the people.''

The Republican Senate majority leader, Joseph L. Bruno, a frequent ally of the health care industry, said he had ''serious differences'' with the governor's proposals, and also took aim at his style.

''When you're governing, it's all about compromise,'' he added. People who ''draw lines in the sand don't get on-time budgets. They don't get results.''

In taking on the health care system, Mr. Spitzer is confronting the nation's costliest Medicaid program, one that helps support an expansive but money-losing hospital industry with arcane financing rules often designed to keep state aid in place, no matter the effect on patient care.

The health care proposals drew a sharp and immediate response from two politically powerful interest groups, the Greater New York Hospital Association and 1199 S.E.I.U., the health care workers' union, which, in a joint statement, said the governor's health proposals were ''riddled with inaccuracies.''

Those two groups have cultivated close ties to legislators and spent millions on political contributions, and in the past have defeated similar proposed cuts by saturating the airwaves with television commercials explaining their viewpoint.

The governor's Medicaid proposals would freeze reimbursement rates to hospitals and nursing homes, lower reimbursements to pharmacies and overhaul payments to hospitals to help them increase salaries.

But many advocacy groups were supportive, saying the proposals brought needed reform to a byzantine system of paying for health care. Michael Kink, legislative counsel of Housing Works, an advocacy and service organization for people with AIDS, said the governor ''moves health care money towards patients and front-line care providers, and away from big institutions that don't serve many Medicaid beneficiaries.''

For his part, the governor contended that ''every patient will come out ahead in the long run,'' adding that large hospitals and nursing homes ''can afford it.''

''They are the ones who have received almost an unending supply of capital and cash over the last 10 or 15 years,'' he said. ''They will have to rationalize their own operations to make themselves accountable for those dollars they are getting.''

Kenneth E. Raske, the president of the Greater New York Hospital Association, said the cuts could hurt patient care. ''He cuts us and we have to cut into the operations of the hospitals, particularly since no one has helped us by putting a freeze on our cost of doing business,'' he said.

The governor's proposed spending increases exceeded former Gov. George E. Pataki's proposals in his executive budget a year ago -- which were just over 4 percent for the total budget. But in his speech, Mr. Spitzer emphasized that his proposals were far lower than the final budget that the Legislature enacted, which increased spending over all by more than 9 percent.

Dealing just with the state's spending of its own money, not federal aid, the governor is proposing to increase total state spending 7.8 percent, to $83.6 billion, or about three times the rate of inflation projected for the state.

Edmund J. McMahon, the director of the Empire Center for New York State Policy, an affiliate of the conservative policy group the Manhattan Institute, called the proposed spending increase the largest in an executive budget ''since Pataki's first election-year budget.''

''Unless the normal law of physics is suspended, it lays the groundwork for a big increase,'' in spending, he said.

The governor said he was not proposing any new taxes, but Republicans disagreed, pointing to $449 million in business-tax loopholes that the governor is proposing to close and $67.7 million in new or higher fees in the budget. The governor also said he would create a special commission to explore whether some of the state's prisons can be closed.

The governor warned lawmakers not to spend more than he was proposing, a notion that made some lawmakers roll their eyes.

''I think it's kind of na? to think you're going to give this budget to the Legislature and they're not going to enhance it in some way,'' said James Tedisco, the leader of Republicans in the Assembly.